International Involuntary Lending and Contingent Default Threat

Posted: 17 Oct 2006

See all articles by Reza Oladi

Reza Oladi

Utah State University - College of Business - Department of Economics

Abstract

A simple model of international debt is formulated in strategic form game, where a country in financial crisis and on the verge of default is requesting a new loan. On the other hand, a bank, with exposure to the foreign country's debt, contemplates whether it should issue the new loan. We show that "issue a new loan" and "not default," a Pareto optimum pair of strategies, is stable. Interestingly, we get this result by using a non-cooperative negotiation process, offered by "individual contingent threat situation."

Keywords: Involuntary lending, international debts, contingent threat situation

JEL Classification: F0, F3

Suggested Citation

Oladi, Reza, International Involuntary Lending and Contingent Default Threat. International Review of Economics & Finance, Vol. 12, pp. 237-245, 2003. Available at SSRN: https://ssrn.com/abstract=937024

Reza Oladi (Contact Author)

Utah State University - College of Business - Department of Economics ( email )

3530 Old Main Hill
Logan, UT 84322-3530
United States

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